BUDGET 2018 - WHAT YOU NEED TO KNOW - SAIPA
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CPD
60mins
Official Journal of the South African Institute of Professional Accountants Issue 31 | 2018
VAT RATE INCREASE FROM 14% TO TAX-DEBT WRITE-OFF AND THE NEW 20% DIVIDEND
15% – THE PRACTICAL IMPLICATIONS COMPROMISE WITHHOLDING TAX RATES
BUDGET 2018 – WHAT YOU NEED TO KNOW
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CONTENTS
FROM SAIPA
04 Word from CoTE
05 SAIPA News – Budget Breakfast
INDUSTRY INSIGHTS
06 Budget 2018 – What you need to know
12
ISSUE 31 | 2018
10 Additional tax proposals
TAX TECHNICAL
12 VAT rate increase from 14% to 15% – The practical implications
14 Tax-debt write-off and compromise
18 Retirement annuities: the new trust
20 Are pension funds, PBOs and universities exempt from all 14
taxes?
21 Extensive Reform for Suppliers of Electronic Services
22 The new 20% dividend withholding tax rates…
BUSINESS
24 Back To Basics – The Power of Attorney
25 Book review
22
26 Broad-Based Black Economic Sector Codes
28 8 Clever tax tips
OFF BALANCE SHEET
30 Staff profile – Sugar Ntwampe
26
WORD FROM COTE
MOVING FORWARD IN 2018
stems from the fact that it may be difficult to fund CPD
60mins
the allocations as per the budget, given the fact that Official Journal of the South African Institute of Professional Accountants Issue 31 | 2018
there were reports at some point of a shortfall in
revenue collection of R50.8 billion.
The crux of the matter is for Government to generate
more revenue through its collection agency, SARS.
However, generating more revenue usually means
increases in taxes which impact heavily on many
South Africans, especially those who will struggle
VAT RATE INCREASE FROM 14% TO TAX-DEBT WRITE-OFF AND THE NEW 20% DIVIDEND
15% – THE PRACTICAL IMPLICATIONS COMPROMISE WITHHOLDING TAX RATES
with such increases.
BUDGET 2018 – WHAT YOU NEED TO KNOW
Publisher
The Budget Speech saw Finance Minister make Richard Lendrum
some “challenging decisions” to address a revenue
Editorial Board
shortfall and fund free higher education. South Debbie Bassa - Editorial Coordinator
Africans will be facing an increase in VAT, the fuel (debbie@thefuture.co.za)
T
Kerry Hodgkinson - Managing Editor
levy and estate duty tax. In addition, some relief for Sugar Ntwampe - Tax Specialist
the poor and working class will be implemented with Faith Ngwenya - Technical &
Standards Executive
the below-inflation increase in personal income tax,
he New Year is in full swing as we and an above average increase in social grants. Contributors
Mahomed Kamdar
move to the second quarter of 2018, Ettiene Retief
with the dust settling from recent The SAIPA 2018/19 Tax Guides are now available.
Design & Layout
changes and tax proposal updates Be sure to get your hands on a copy. Nadette Voogd
courtesy of the 2018/19 Budget Production
Speech. Mabel Ramofoko
It is an exciting time. This excitement is however also Sugar Advertising Sales
Debbie Bassa
(debbie@thefuture.co.za)
accompanied by a certain level of anxiety because
Sugar Ntwampe
of the current state of the economy. The anxiety Tax Specialist, SAIPA-CoTE
Published by Future Publishing
(Pty) Ltd
PO Box 3355, Rivonia,
2128, South Africa
HOT OFF THE PRESS
- SAIPA 2018/19 TAX GUIDES NOW AVAILABLE!
The SAIPA 2018/19 Tax Guide is now available and a copy
will be available free to all members.
TAX GUIDE SAIPA National Office
2018 / 19
Members who registered and attend the Tax Update CPD Waterfall Park,
Vorna Valley, Midrand
seminars in March 2018, should have received copies. PO Box 2407,
Halfway House, 1685
Tel: 011 207 7840
For those members who did not attend the Tax Update www.saipa.co.za
CPDs, copies are available for collection from SAIPA
National Office in Midrand, or a copy may be posted or TAX GUIDE © This publication is protected in
couriered to you for your own account. 2018 / 19 terms of the Copyright Act 98 of 1978
© Copyright. All copyright for material
In addition, extra copies are available for purchase, incl VAT: appearing in this magazine belongs
to Future Publishing. No part of this
• Less than 10 copies @ R30 per copy magazine may be reproduced without
written consent of the publisher.
• 10 copies – posted @ R250
• 10 copies – collected @ R200 SOUTH AFRICAN INSTITUTE OF
The views expressed by the contributors
PROFESSIONAL ACCOUNTANTS do not necessarily reflect those of SAIPA,
SAIPA House, Howick Close,
Waterfall Park, Vorna Valley, Midrand, 1686 Tax Professional or the publisher.
To order your copies, please
SAIPA email taxcentre@saipa.co.za
PO Box 2407, Halfway House, 1685, South Africa
(T) 08611 SAIPA (72472) • (F) +27 (0) 11 805 0105
www.saipa.co.za • info@saipa.co.za
TM
Y O U R W E A LT H
4 TAX PROFESSIONAL
SAIPA NEWS
BUDGET BREAKFAST 2018
S
AIPA’s annual Budget Breakfast event took to the Northern Region at the Royal Elephant Hotel & Conference in Pretoria in February,
where members enjoyed the opportunity to network and unpack the 2018 Budget Speech and what it meant for SAIPA members.
SAIPA’s high-ranking experts, including Etienne Retief chairperson of the national tax and SARS stakeholders committees at
SAIPA; Judge Bernard Ngoepe of the Office of the Tax Ombud; Faith Ngwenya, Technical Standards & Services Executive at SAIPA;
Professor Jannie Rossouw, Head of the School of Economic and Business Sciences, Wits University; as well as Zweli Mabhoza, founder
and director of Priority Tax Solutions, weighed in on the 2018 Budget Speech.
Giving their expert opinions (from left to right): Faith Ngwenya, Zweli Mabhoza, Judge Sage’s Laurica Kok with Ange Baard –
Bernard Ngoepe and Etienne Retief discuss the implications of the 2018 Budget Speech. winner of the Sage hamper.
Members enjoy the opportunity of networking.
Bongani Coka, SAIPA Chief Executive,
officially opened the 2018 Budget
Breakfast event.
Sugar Ntwampe, Tax Specialist, SAIPA-
CoTE, thanks Judge Ngoepe for sharing Zimkhitha Zatu, Head of Edge, Standard Karen Camberg with winner of the Juta
his insights. Bank. hamper.
TAX PROFESSIONAL 5
BUDGET 2018
Budget 2018
– What you need to know
Mahomed Kamdar, Tax Advisor, SAIPA
G
overnment expects a revenue deficit of the increased collection of taxes will be used to reduce the debt.
R48.2 billion in 2017/18. This is slightly lower than However, evidence indicates that the increased revenue will be
the R50.8 billion projected in the 2017 MTBPS, used to fund activities which will not reduce the debt-to-GDP ratio.
but substantially higher than the R30.7 billion
revenue gaps in 2016/17. As a result, government The largest contribution is R22.9 billion from the one percentage
proposes a combination of expenditure cuts and revenue point increase in VAT. In addition, R6.8 billion will be raised from
increases to make up for the shortfall. lower-than-inflation increases to the personal income tax rebates
and brackets.
At the time of 2008 financial crisis when South Africa had a gross
debt-to-GDP ratio that was just above 26 per cent. That ratio now It is alleged that these measures along with public spending cuts,
stands at 53.3 per cent. Tax policy is designed to raise R36 billion will contribute to reducing the budget deficit and funding fee-free
in additional revenue in 2018/19. The question hinges on whether higher education and training for poor and working-class students.
Table 1: Personal income tax rates and bracket adjustments
2017/18 2018/19
Taxable income (R) Rates of tax Taxable income (R) Rates of tax
R0 - R189 880 18% of each R1 R0 - R195 850 18% of each R1
R34 178 + 26% of the amount R35 253 + 26% of the amount
R189 881 - R296 540 R195 851 - R305 850
above R189 880 above R195 850
R61 910 + 31% of the amount R63 853 + 31% of the amount
R296 541 - R410 460 R305 851 - R423 300
above R296 540 above R305 850
R97 225 + 36% of the amount R100 263 + 36% of the amount
R410 461 - R555 600 R423 301 - R555 600
above R410 460 above R423 300
R149 475 + 39% of the amount R147 891 + 39% of the amount
R555 601 - R708 310 R555 601 - R708 310
above R555 600 above R555 600
R209 032 + 41 % of the amount R207 448 + 41% of the amount
R708 311 - R1 500 000 R708 311 - R1 500 000
above R708 310 above R708 310
R533 625 + 45% of the amount R532 041 + 45% of the amount
R1 500 001 and above R1 500 001 and above
above R1 500 000 above R1 500 000
Rebates Rebates
Primary R13 635 Primary R14 067
Secondary R7 479 Secondary R7 713
Tertiary R2 493 Tertiary R2 574
Tax threshold Tax threshold
Below age 65 R75 750 Below age 65 R78 150
Age 65 and over R117 300 Age 65 and over R121 000
Age 75 and over R131 150 Age 75 and over Rl35 300
Source: National Treasury
6 TAX PROFESSIONAL
THE MAIN TAX PROPOSALS FOR 2018/19
1 one percentage point increase in VAT to 15 per cent with
A
VAT 1%
➩
effect from 1 April 2018. The zero-rating of 19 basic food items
mitigates the effect of the increase on poor households. As of
1 April 2018, government proposes to amend the VAT Act such
that only brown read and whole wheat brown bread will be zero-
rated. Products such as rye or low GI bread, will not be zero-rated.
Regulations prescribing foreign electronic services subject to
VAT would be broadened to include cloud computing and other
online services. Legislation will be published for public comments.
2 No adjustments to the top four income tax
brackets, and below inflation adjustments to the
bottom three brackets.
3
n increase of 52c/litre for fuel, consisting of a
A
➩
52c/l
22c/litre increase in the general fuel levy and 30c/
litre increase in the Road Accident Fund levy.
4
7&9
Higher ad valorem excise duties for luxury goods. Effective
➩
1 April 2018, the maximum ad valorem excise duty for motor
vehicles will be increased from 25 per cent to 30 per cent. The
classification of cellular telephones will be updated to include
“smart phones” to ensure they attract ad valorem excise duties.
In addition, the ad valorem excise duty rates, now at 5 per
cent and 7 per cent, will be increased to 7 per cent and 9 per
cent, ensuring that households spending more on luxury goods
contribute proportionately more to revenue.
6
➩
5 he plastic bag levy
T
Increased estate duty, to be levied at 25 per cent for estates was increased by
above R30 million. The 2018 Budget proposes to increase estate 50 per cent to
duty from 20 per cent to 25 per cent for estates worth R30 million 12 cents per bag
50%
and more. To limit the staggering of donations to avoid the higher effective 1 April
estate duty rate, any donations above R30 million in one tax year
will also be taxed at 25 per cent. Both measures are effective from 2018.
1 March 2018.
8
7 The vehicle emissions tax will be
The environmental levy on increased to R110 for every gram
incandescent light bulbs will increase above 120 gCO2/km for passenger
from R6 to R8 to incentivise more vehicles and R150 for every gram
above 175 gCO2/km for double cab
LEVY
energy-efficient behaviour.
This measure takes effect from vehicles, effective
1 April 2018. 1 April 2018.
Medical tax credit
10
The medical tax credit for the year of assessment 9
Government ending February 28 in he health promotion
T
2018 2019 levy, which taxes sugary
R303
R606
in respect of benefits to the taxpayer per month
in respect taxpayer and one dependant per month
R310
R620
beverages, will be
implemented from
TAX
1 April 2018.
R204 per month for the remaining beneficiaries R209
TAX PROFESSIONAL 7
BUDGET 2018
PERSONAL INCOME TAX
The following table illustrates the effect of the changes to the
The tax burden on individuals has personal income tax rates will have on the various income
been increasing over the years. levels for taxpayers under 65 years:
Effective capital gains tax rates
Table 2: Effects of changes to the personal income tax rates
have also been increased over
time to build on the progressive 2018/2019 Change from
character of the tax system. Taxable income tax due 2017 /2018 % change
South Africa’s personal income R 100 000 R3 933 - R432 - 9.9%
tax burden has increased steadily R 200 000 R22 265 - R910 - 3.9%
from 8.3 per cent of GDP in
2010/11 to 9.8 per cent in R 500 000 R113 807 - R2 017 - 1.7%
2017/18. Last year government R 1 000 000 R312 973 - R2 017 - 0.6%
added a new top income tax
R 1 500 000 R517 973 - R2 107 - 0.4%
bracket of 45 per cent for those
earning above R1.5 million. R 2 000 000 R742 973 - R2 107 - 0.3%
Analysis by PWC
Table 3: Total combined fuel taxes on petrol and diesel
2016/17 2017/18 2018/19
Rands/litre 93 octane petrol Diesel 93 octane petrol Diesel 93 octane petrol Diesel
General fuel levy 2.85 2.70 3.15 3.00 3.37 3.22
Road Accident Fund levy 1.54 1.54 1.63 1.63 1.93 1.93
Customs and excise levy 0.04 0.04 0.04 0.04 0.04 0.04
Total 4.43 4.28 4.82 4.67 5.34 5.19
Pump price 1 12.69 11.11 13.55 11.96 13.90 12.57
Taxes as percentage of pump price 34.9% 38.5% 35.6% 39.0% 38.4% 41.3%
Average Gauteng pump price for the 2016/17 and 2017/18 years. The 2018/19 figure is the Gauteng pump price in February
1.
2018. Diesel (0.05% sulphur) wholesale price (retail price not regulated) [Source: National Treasury]
Table 4: Changes in specific excise duties, 2018/19
Current excise Percentage change
Product duty rate Proposed excise duty rate Nominal Real
R86.39/litre of absolute alcohol R95.03 / litre of absolute alcohol
Malt beer 10.0 4.5
{146,9c / average 340ml can} (161,56c / average 340ml can)
Traditional African beer 7.82c/litre 7.82c/litre _ -5.5
Traditional African beer _
34.70c/kg 34.70c/ kg -5.5
powder
Unfortified wine R3.61/litre R3.91/litre 8.5 3.0
Fortified wine R6.17/litre R6.54/litre 6.0 0.5
Sparkling wine R11.46/litre R12.43/litre 8.5 3.0
Ciders and alcoholic fruit R86.39/litre of absolute alcohol R95.03/litre of absolute alcohol
10.0 4.5
beverages (146,9c/average 340ml can} (161,56c / average 340ml can}
R175.19/litre of absolute alcohol R190.08/litre of absolute alcohol
Spirits 8.5 3.0
(R56.50/750ml bottle) (R61.30/750ml bottle)
Cigarettes R14.30/20 cigarettes R15.52/20 cigarettes 8.5 3.0
Cigarette tobacco R16.07/50g R17.44/50g 8.5 3.0
Pipe tobacco R4.56/25g R4.94/25g 8.5 3.0
Cigars R75.86/23g R82.31/ 23g 8.5 3.0
Source: National Treasury
8 TAX PROFESSIONAL
SUBSISTENCE ALLOWANCE (S8(1)(c) ITA) “No fuel cost may be claimed if the
Where an employee is required to spend at least one night employee has not borne the full cost
away from his/her usual place of residence on business, the
employer may pay a subsistence allowance. No employees’ tax of fuel used in the vehicle.”
is deducted from a subsistence allowance. The full allowance
however, must be reflected on the IRP5 and reflected as
non-taxable. However, if the payments exceed the limits, the Note:
excessive payment is assessed by SARS. 80% of the travelling allowance must be included in the
employee’s remuneration for the purposes of calculating PAYE.
The following limits for subsistence allowances are for travel The percentage is reduced to 20% if the employer is satisfied
within the Republic: that at least 80% of the use of the motor vehicle for the tax year
1) Meals and incidental costs – R416 (2018: R397) per day is will be for business purposes. No fuel cost may be claimed if the
deemed to have been expended. employee has not borne the full cost of fuel used in the vehicle
and no maintenance cost may be claimed if the employee has not
2) Incidental costs only – R128 (2018: R122) per day is
borne the full cost of maintaining the vehicle (e.g. if the vehicle is
deemed to have been expended.
covered by a maintenance plan).The fixed cost must be reduced
The deemed expenditure for subsistence allowances for on a pro-rata basis if the vehicle is used for business purposes for
travelling outside the Republic is based on an amount prescribed less than a full year. The actual distance travelled during a tax year
and updated annually, based on a rate per country, which may and the distance travelled for business purposes substantiated by
not be for a period of more than six consecutive weeks. Details of a log book are used to determine the costs which may be claimed
these amounts are published in the SARS website. against a travelling allowance.
TRAVELLING ALLOWANCE ALTERNATIVE SIMPLIFIED METHOD
Rates per kilometre, which may be used in determining the Where an allowance or advance is based on the actual distance
allowable deduction for business travel travelled by the employee for business purposes, no tax is
against an allowance or advance where payable on an allowance paid by an employer to an employee
actual costs are not claimed, are up to the rate of 361 cents per kilometre, regardless of the value
determined by using the of the vehicle. However, this alternative is not available if other
following table: compensation in the form of an allowance or reimbursement
(other than for parking or toll fees) is received from the employer
in respect of the vehicle.
Deemed Expenditure 2018
Where the value of Fixed Fuel cost Maintenance INCOME TAX: SMALL BUSINESS CORPORATIONS
the vehicle cost R c/km costs c/km Financial years ending on any date between
Does not exceed 1 April 2018 and 31 March 2019
28 352 95.7 34.4 Taxable Income (R) Rate of Tax (R)
R85 000
Exceeds R85 000 but 0-78 150 0% of taxable income
does not exceed 50 631 106.8 43.1 7% of taxable income
78 151-365 000
R170 000 above 78 150
Exceeds R170 000 but 365 001-550 000 20 080 + 21% of taxable
does not exceed 72 983 116. 47.5 income above 365 000
R255 000 58 930 + 28% of the
550 001 and above
amount above 550 000
Exceeds R255 000 but
does not exceed 92 683 124.8 51.9
R340 000 TURNOVER TAX FOR MICRO BUSINESSES
Exceeds R340 000 but Financial years ending on any date between
does not exceed 112 443 133.5 60.9 1 March 2018 and 28 February 2019
R425 000 Taxable turnover (R) Rate of tax (R)
Exceeds R425 000 but 0-335 000 0% of taxable turnover
does not exceed 133 147 153.2 71.6 1% of taxable turnover
335 001-500 000
R510 000 above 335 000
Exceeds R510 000 but 500 001-750 000 1 650 + 2% of taxable turnover
does not exceed 153 850 158.4 88.9 above 500 000
R595 000
750 001 and above 6 650 + 3% of taxable turnover
Exceeds R595 000 153 850 158.4 88.9 above 750 000
TAX PROFESSIONAL 9
BUDGET 2018
Additional Tax Proposals -
Budget 2018
The former Minister of Finance, Malusi Gigaba, delivered South Africa’s
2018 Budget speech to Parliament on 21 February 2018. R36 billion in
additional tax revenue will be raised by other tax proposals, including:
Conor McFadden, Fasken
Ad-valorem excise duty rate
on luxury goods increased
from 7%-9%.
Increases in the alcohol and
A higher donations tax rate of
tobacco excise duties of 6%.
25% for donations exceeding
R30 million in one tax year.
A higher estate duty tax rate
of 25% for estates greater than
A 52 cents per litre
R30 million.
increase in the levies on
fuel, made up of 22 cents
per litre for the general
fuel levy and 30 cents per
litre increase in the Road
Accident Fund Levy.
I
In the 2018 Budget Review some additional tax discussion document inviting comments will soon be published to
amendments were proposed by the Minister. Below is facilitate public consultation.
a summary of some of the proposals. It is important to
bear in mind that the enacting legislation in respect of these SHARE BUYBACKS AND DIVIDEND STRIPPING
proposals will only be sent out for public comment later in In 2017, anti-avoidance rules dealing with share buybacks and
the year. dividend stripping were revised. One such rule specified that
anti-avoidance rules would override corporate reorganisation
DEBT RELIEF RULES rules to prevent taxpayers from stripping dividends out of a
Last year the Income Tax Act was amended to address the tax target company, and thereby devaluing the company, before
consequences of applying debt relief rules. Government has a reorganisation transaction. Government has recognised that
noted concerns about unintended consequences that may arise these changes may affect some legitimate transactions and
from the application of these tax amendments and has proposed arrangements. Accordingly, it has proposed that the interaction
that further amendments be made to address these concerns. It is of these anti-avoidance rules and some of the corporate
not clear what specific concerns are to be addressed. However, a reorganisation rules be reviewed. In addition, anti-avoidance
10 TAX PROFESSIONAL“Government’s view is that
cryptocurrencies pose risks to the
rules dealing with share buybacks and dividend stripping
regarding preference shares should be clarified. income tax system as they are extremely
volatile, and their sustainability is
DEBT-FINANCED ACQUISITIONS OF CONTROLLING
INTEREST IN AN OPERATING COMPANY uncertain.”
After the proposed suspension of intra-group transactions
in 2012, a special interest deduction was introduced instead
of allowing implementation of debt push-down structures. TAX TREATMENT OF CRYPTOCURRENCY TRANSACTIONS
Companies can claim this deduction if they used debt funding to Government’s view is that cryptocurrencies pose risks to the
acquire a qualifying controlling interest in an operating company. income tax system as they are extremely volatile, and their
sustainability is uncertain. At the same time, the supply of
In 2015, the legislation was amended to prevent the abuse cryptocurrency can cause administrative difficulties in the VAT
of this deduction. To qualify for this deduction, an operating system. To address these issues, it is proposed that the income
company is now defined as a company where at least 80 per cent tax and VAT legislation be amended.
of its receipts and accruals constitute income for tax purposes.
However, it has been recognised that amendments to the current NOTIFICATION OF COMMENCEMENT OF AN AUDIT
provisions are needed to clarify when this test should be applied. In a welcome move, it is proposed that a taxpayer be notified at
the start of an audit to keep all parties informed.
In addition, it has been proposed that the relevant legislation be
reviewed to determine whether this test should be applied when CARBON TAX
an operating company transfers its business as a going concern Parliament is currently considering the draft Carbon Tax Bill
to a company that forms part of the same group of companies as and the Minster stated that the Act is to come into force
that operating company. from 1 January 2019 in order meet its nationally determined
contributions under the 2015 Paris Agreement of the United
REVIEW OF VENTURE CAPITAL COMPANY RULES Nations Framework Convention on Climate Change. Parliament
Government’s venture capital companies tax incentive regime, has convened hearings following the release of the draft bill in
introduced in 2008, has grown significantly over the past two December 2017.
years. The number of approved venture capital companies is
currently 90 with total investments of R2.5 billion. However, EXCHANGE CONTROL PROPOSALS
administrative and technical issues are obstructing increased Reforming loop structures
uptake. It has been proposed that the legislation be amended Loop structures take place when South Africans invest in South
to address rules relating to the investment income threshold Africa via an entity in another country. Such structures may be set
limitations in the qualifying company test, as well as when the up for genuine reasons, for example, when the entity has investors
controlled company test needs to be applied. The rules relating from around the world. But sometimes these structures are set
to the connected person test will also be reviewed, specifically up to avoid tax. It is proposed that the loop structure provision is
the rule for retroactive withdrawal of venture capital company increased from 20 per cent to a maximum of 40 per cent for bona
status. fide business investment, growth and expansion transactions. The
current minimum requirement of 10 per cent is abolished. This
VALUE-ADDED TAX applies to companies, including private equity funds, provided
A VAT vendor can claim a deduction for VAT on taxable supplies that the entity is a tax resident in South Africa. Loop structures
that have to be written off. If the vendor cedes or sells the debt above the prescribed threshold will require Reserve Bank approval
that has been written off on a non-recourse basis for an amount with due consideration to transparency, tax, equivalent audit
that is less than the amount owing, then the sale of the debt is standards and governance.
exempt from VAT and the vendor is not required to make any
adjustments to the previous VAT deduction. Government has Inward listings
noted that some vendors (such as collection agents or banks) that In 2018, the National Treasury will release a comprehensive
buy the book debt in terms of the abovementioned arrangement inward listings review paper, which will address various matters,
then attempt to claim a further VAT deduction if they write off including the standards of reporting and information provision,
all or part of this debt in future. This results in a double VAT company track records, arms-length arrangements, valuation of
deduction, which is against the intention of the legislation. the acquiring company, management arrangements, funding
arrangements, deployment of listing proceeds, due diligence,
To prevent this double VAT deduction, it is proposed that the audit history, stakeholder protection, better treatment of holders
term “face value of a debt transferred” will be defined in the VAT of securities, and confidence among market participants.
Act. An amendment has been proposed to provide legal certainty
that the members of a joint venture may also be jointly and Review of significant and strategic transactions
severally liable for the VAT debts of that venture. Updated draft To support cross-border investment and increase transparency,
regulations prescribing foreign electronic services and supporting the National Treasury will release a paper later this year on
amendments to the VAT legislation have been published for a proposed policy framework for the review and approval of
public comment. complex cross-border transactions. ■
TAX PROFESSIONAL 11VAT
The practical implication of
the increase in the rate of VAT
from 14% to 15%
Mahomed Kamdar, Tax Advisor, SAIPA
The accountancy fraternity was up in arms when it was announced that the standard
VAT rate was increased by 1% with effect from 1 April 2018. Their concerns related to
the submissions of VAT returns for periods approaching the implementation date.
T
he VAT1 Act permits the Minister to announce from 10% to 14%3. Hence, tax practitioners, understandably,
changes in the VAT rate becoming effective from the tend to forget the existence of sections in the Act relating to the
date specified in that announcement, provided, that application of increases or decreases in the VAT rate.
Parliament passes the legislation giving effect to the
announcement. It is further observed that the VAT It is only vendors under Category B (March/April), Category E
rate may change via an announcement by the Minister and such (annual return) and most farmers registered under Category D VAT
announcement must be made in Parliament but not restricted to reporting periods, who will have transactions subject to the VAT at
Budget Day. both the existing rate (14%) and new rate (15%).
TRANSACTIONS IDENTIFIED
The purpose of this brief is to determine what the VAT
General remarks
implication would be during the transition of the VAT rate from
The general rule for time of supply for goods or services is deemed
14% to 15% effective from 1 April 2018. The questions are as
to take place at the time an invoice is issued by the supplier or the
follows:
time any payment is received by the supplier, which ever time is
1) What are the VAT implications for transactions originating earlier. This supply rule is still applicable but there are two specific
before the announcement on 21 February 2018; and, rules regarding the application of the increased VAT rate. The
secondly, effect of the first rule, is that, if a transaction was concluded before
2) What are the VAT implications for transactions originating 1 April 2018, but the delivery of the goods or the performance
before the implementation date 1 April 2018, but the of the service only takes place on or after 1 April 2018, then the
services and goods are rendered or delivered after following rules apply:
implementation date? • Goods shall be deemed to be provided by the supplier when
such good are delivered to the recipient, or made available for
collection, and
This discussion can only be pursued by identifying a few common • In the case of services, the rate applicable is the date when the
transactions frequently undertaken by vendors (taxpayers). services were physically performed.
Of course, the VAT Act is not silent on the VAT outcomes for The supply of goods
transactions occurring during the period when a change in VAT As per the abovementioned deeming provisions, goods delivered
rate is envisaged. The relevant section2 of the VAT Act was last by a vendor before 1 April 2018, the applicable rate is 14%4
applied almost 25 years ago when the VAT rate was changed irrespective of the date of invoice or payment.
12 TAX PROFESSIONALTherefore, a delivery note confirming the transfer of ownership of “It is hoped that this brief will assist
the good will is an essential document required in order to pay the
output tax at 14%.
vendors in applying the correct
VAT rate during this transition
Please note that this rule does not apply to the sale of fixed
property. from 14% to 15% with effect from
Rental agreement and progressive/periodic supply of goods
1 April 2018.”
The rental agreement and progressive supply of goods which
expires before 1 April 2018, the applicable rate is 14%. However,
if the supply of goods/services expires after 1 April 20185, for contract. This applies to the sale of fixed property consisting
example, December 2018, the value of the supply shall be based of dwelling and together with land on which it is erected. It
on fair apportionment. Hence the supply of goods relating to the also includes share block companies.
period before 1 April 2018 will be at 14% and the supply of goods
relating to the period after 1 April 2018 shall be at 15%. Please note that the rate of tax applicable is at the date on which
such agreement was concluded. The VAT consequence does not
Services depend on when the building of the dwelling commenced or
With references to the supply of services which are performed when the building of the dwelling was completed.
during a period that ends before 1 April 2018, the applicable
rate is 14%. Electricity bills, supplied by a municipality are in Lay-by sales
monthly arrears, implying that the service were consumed in With reference to lay-by sales whereby the goods sold are for a
the month of March but the invoice will be issued in April 2018. consideration not exceeding R10 000 and all the following must
Hence the VAT for this invoice will be at 14%. However, if the be applicable before 1 April 2018:
supply of or the performance of services ends after 1 April • Deposit is received,
20186, for example, December 2018, the value of the supply • Agreement is concluded, and the
shall be based on fair apportionment. Hence the supply of • The amount for the lay-by good was paid by the supplier.
services relating to the period before 1 April 2018 will be at 14%
and the supply of services relating to the period after 1 April Then only will the the applicable VAT rate will be the date on
2018 shall be at 15%. which such agreement is concluded that is 14%.
Credit/debit notes
The supplies to which this provision applies are: Recall that credit notes are issued by a supplier after a tax invoice
• Rental agreements, was issued and the consideration for the supply is reduced (for
• Progressive/periodic supplies of the goods, example, when faulty goods are returned to a supplier). A vendor
• Construction activities, and that issues a credit note is required to make an adjustment either
• Services physically rendered over the period concerned. to input tax or output tax. The vendor receiving a credit note must
make an adjustment to output tax. These adjustments must be
Please note that this rule does not apply to fixed property. accounted for in the VAT return for the tax period in which the
decrease in consideration occurs, that is, in the tax period in which
the credit note is issued.
Supply of goods or services after 21 February 2018 but before
1 April 2018 A vendor that issues a debit note is required to make an
The discussion below refers to the second specific rule which adjustment to output tax. The vendor receiving a debit note must
is applicable when the VAT rate is increased. Section 67A(2) make an adjustment to input tax. These adjustments must be
of the VAT Act deals, specifically with, the situation in which accounted for in the VAT return for the tax period in which the
where an invoice or payment falls in a period after the date of increase in consideration occurs, that is, in the tax period in which
announcement (in this situation 21 February 2018) of the increase the debit note is issued by the vendor. However, it is likely that this
in VAT rate, and before the date of change (in this situation credit/debit will be issued long after 1 April 2018, that is, when
1 April 2018) of VAT rate, but the good or service is supplied the new VAT rate of 15% is applicable. It is very likely that these
for more than 21 days after 1 April 2018 (meaning the supply of credit/debit notes refer to transactions occurred when the VAT
good or service well beyond 23 April 2018 inclusive, an example rate was 14%. So, although these notes were issued after
is the supply of commercial accommodation, such as office 1 April 2018, the adjustment must be made at rates applicable to
block), the applicable VAT rate will be 15%. the original supply.
However, this rule will not apply in the following situations: Conclusion
It is hoped that this brief will assist vendors in applying the correct
• Where payments are traditionally made in advance or where
VAT rate during this transition from 14% to 15% with effect from
invoices are issued in advanced7. Practical examples, of such
1 April 2018. The tax fraction with effect from 1 April 2018 will
situations, where payments are made in advance could the
be 15/115. Hence, for every R100 spent on non-zerated items,
indemnity insurance policy, maintenance contracts and when
taxpayers will pay an additional 76 cents. ■
SAIPA issue invoices at the beginning of 2018 in respect of
membership fees, and
• Whereby, written contracts are legally concluded before 1
3
Section 7 (4) 2 Section 67A
The rate was changed from 10% to 14% with effect from 7th April 1993.
1 April 2018 and the price was stated in the legally valid 4
Section 67A(1)(i) 5 Section 67A() (ii) 6 Section 67A() (ii) 7 Section 67A(2)(i)
TAX PROFESSIONAL 13TAX LIABILITY
WRITE-OFF OR COMPROMISE
OF TAX-DEBTS
Mahomed Kamdar, Tax Advisor, SAIPA
Any amount due to SARS represents a liability that places a responsibility on the
taxpayer to fulfil its financial obligations, as with any other creditor. In practice,
taxpayers treat obligations with SARS as a long-term creditor with no fixed period of
payment – only paying the outstanding debt when surplus cash is available. SARS,
however, expects taxpayers to give the same priority to tax obligations as they give
to the other creditors.
L
ike all business entities, SARS will perform a risk with the compromise1 of a tax-debt becomes relevant and the
assessment on the recoverability of the tax-debt. SARS tax practitioner, on behalf of the taxpayer, could apply for a
will consider the tax debtor’s individual circumstances compromise of a tax-debt.
and compliance history to determine the financial status
of the taxpayer. For example, the tax debtor’s history Thereafter, SARS will decide, whether, to accept the application
in lodging correct returns and documents and paying taxes on for the compromise, or to write-off the debt in its entirety. A
time are considered favourably by SARS when pursuing a tax-debt compromise is a partial write-off a tax-debt. It is a part-payment of
recovery. the debt usually expressed as cents in a rand. A write-off of a debt
is a complete eradication of the outstanding tax-debt. It is further
If a taxpayer cannot pay a tax-debt, or if it would be financially noted that an application for a compromise of a tax-debt does not
onerous on SARS to pursue a tax-debt, the provisions dealing always lead to a complete write-off of a tax-debt.
14 TAX PROFESSIONALBoth the compromise of a tax-debt and a complete write-off of a It is further noted that only a senior SARS official may request
debt may be either of a temporary or of a permanent nature. additional information.
CONDITIONS FOR TABLING AN APPLICATION FOR A Tax practitioners, acting on behalf of taxpayers, must submit the
COMPROMISE information justifying the claims for not being able to pay the full
amount of the tax-debt.
It is important to note that the application for a compromise of a
tax-debt may only be tabled if the liability to pay the debt is not in Circumstances in which SARS would not compromise a tax-
dispute2. So, tax practitioners, this brief becomes relevant only if debt
the taxpayer accepts that the tax-debt outstanding is payable, but
A senior SARS official may not compromise any amount of a tax-
the taxpayer is not able to settle the amount because of his/her
debt if the taxpayer:
financial position. The taxpayer could have previously contested the
tax liability by observing the rules of dispute resolution. However, 1. Was party to an agreement with SARS to compromise
at the time of tabling an application for a compromise, there must an amount of tax-debt within the period of three years
be no dispute on the amount of tax-debt outstanding. The taxpayer immediately before the request for the compromise,
would have objected to an assessment previously but on the eve 2. Tax affairs (other than the outstanding tax-debt) are not up to
of tabling an application for a compromise, there is unanimous date,
acceptance of the tax liability. The request for a compromise may 3. Another creditor has communicated its intention to initiate or
only be tabled if the tax-debt is finalised and the taxpayer agrees has initiated liquidation or sequestration proceedings,
with the amount due and does not intend to dispute it. 4. The compromise will prejudice other creditors (unless the
affected creditors consent to the compromise) or if other
COMPROMISE OF A TAX-DEBT creditors will be placed in a position of advantage relative to
SARS,
The tabling of an application for a compromise of a tax-debt 5. It may adversely affect broader taxpayer compliance, or
The tax practitioner, on behalf of a taxpayer, applies for a 6 Is a company or a trust and SARS has not first explored
compromise of a tax-debt. The taxpayer is expected to submit a action against or recovery from the personal assets of the
detailed statement disclosing the following: persons (third parties) who may be liable for the debt.
1. The assets and liabilities reflecting their current fair market
value,
Procedure for compromising a tax-debt
2. The amounts received by or accrued to, and expenditure
A senior SARS official and the taxpayer must sign a compromise
incurred by, during the 12 months immediately preceding the
agreement thereby giving effect to the compromise of the tax-
request,
debt. The agreement3 must:
3. The assets which have been disposed of in the preceding
• State the amount payable by the taxpayer in full satisfaction
three years, or such longer period as a senior SARS
of the debt,
official deems appropriate, together with their value, the
• Disclose an undertaking by SARS not to pursue recovery of
consideration received or accrued, the identity of the person
the balance of the tax-debt, and
who acquired the assets and the relationship between the
• The conditions subject to which the tax-debt is compromised
taxpayer and the person who acquired the assets, if any (this
by SARS.
is essentially a test for cash/asset stripping,
4. Future interests in any assets, whether certain or contingent
The above conditions may include a requirement that the
or subject to the exercise of a discretionary power by another
taxpayer must:
person (examine if conditional rights on assets not included in
• Comply with subsequent obligations imposed in terms of a
first point above),
tax Act,
5. The assets over which the taxpayer either alone or with
• Pay the tax-debt in the manner prescribed by SARS, or
other persons, has a direct or indirect power of appointment
• Give up specified existing or future tax benefits, such as
or disposal, whether as trustee or otherwise (test whether
carryovers of losses, deductions, credits and rebates.
transactions where undertaken at arms-length),
6. Details of any connected person in relation to the taxpayer.
If a taxpayer, hypothetically, owes SARS R2 000 000 and the
7. Present sources and level of income and the anticipated
agreement states that the taxpayer must pay an amount of
sources and level of income for the next three years, with
R250 000 in full settlement of the debt, the agreement would
an outline of the taxpayer’s financial plans; and (budgets,
also stipulate a time-frame within which the R250 000 should be
forecasts and cash budgets), and
paid. If the taxpayer adheres to these conditions then SARS must
8. Reasons for seeking a compromise.
agree to waive and not recover the outstanding debt of
R1 750 000 (R2m – R250 000).
In addition, the taxpayer must:
1. Supply evidence supporting the claims for not being able to
make payment of the full amount of the tax-debt, and
2. Testify that the information provided in the application is 1
Section 201 of the Tax Administration Act 28 of 2011
2
Section 194 of the Tax Administration Act 28 of 2011
accurate and complete. 3
Section 204 of the Tax Administration Act 28 of 2011.
TAX PROFESSIONAL 15TAX LIABILITY
However, in situation of insolvency, SARS as a creditor is afforded
“A temporary write-off is a mere preferential status6. If the taxpayer is insolvent, then SARS will
suspension of the recovery of a debt, be paid after the secured creditors and employees who have
claims against the insolvent estate. In other words, SARS receives
and the debt may still be recoverable payment before a company’s creditors who do not have security
(concurrent creditors).
during the prescription period.”
The decision to write-off a tax-debt is made by a senior SARS
official and it is not initiated by the taxpayer. If the taxpayer’s
circumstances changes and SARS consequently hold a view that it
Compromise of a debt: temporary or permanent
is economical to collect the debt, the decision to temporary write-
It is possible that a compromise agreement would include
off the tax-debt can be withdrawn by SARS.
a clause stating that the taxpayer must comply with his/her
future obligations imposed under a tax act. Failure to promptly
SARS7 could consider the following factors in determining whether
comply with a tax act in the future could result in the permanent
a debt is uneconomical to pursue.
compromise of a tax-debt being reduced to a temporary
compromise. SARS could claim the outstanding tax-debt of Act Commentary
(R1 750 000 in our example) if the taxpayer fails to adhere to any
tax obligations in the future. 1. The amount of the tax-debt The debts must be compared
in relation to the cost of
SARS not bound by compromise of tax-debt recovery to determine the cost
There are circumstances under which SARS will not be bound by a benefit of pursuing the matter
compromise agreement. These are:
2. The length of time that The time the debt is
• When the taxpayer fails to disclose a material fact relating to the tax-debt has been outstanding as well as the
the compromise, outstanding response of the taxpayer to
• Taxpayer supplies materially incorrect information, or SARS communication will
• Taxpayer fails to honour a condition listed in the compromise influence the how the matter
agreement. will be pursued
3. T
he steps taken to date to
WRITE-OFF OF TAX-DEBT
recover the tax-debt and
Whilst SARS is mandated to collect all tax-debt in terms of the costs involved in those
the South African Revenue Service Act 34 of 1997, there are steps, including steps taken
circumstances under which SARS may take a decision to write- to locate or trace the debtor
off a tax-debt and consequently not to pursue its collection.
4. The likely costs of
Tax-debt may be written-off, temporarily or permanently, when
continuing action to
a debt is irrecoverable and the effort and cost of pursuing it
recover the tax-debt and
is uneconomical to SARS or it is regarded as being a legal
the anticipated return from
impossibility.
that action, including the
likely recovery of costs that
Temporary write-off of debt
may be awarded to SARS
A temporary write-off is a mere suspension of the recovery
of a debt, and the debt may still be recoverable during the 5. The likely costs of An obvious reference to the
prescription period4. This period, under the Act, will be 15 years continuing action to lifestyle of the taxpayer. A
from the date a tax-debt comes into existence i.e. from the date recover the tax-debt and taxpayer should not have a
of assessment of tax, or the date of a decision that is subject to the anticipated return from wasteful luxury expenses whilst
objection and appeal giving rise to a tax liability, becomes final that action, including the pleading poverty to SARS
i.e. when a taxpayer fails to pay tax by the due date. likely recovery of costs that
may be awarded to SARS
Only a senior SARS official may authorise a temporary write-off
6. Any other information
of an amount of tax-debt whilst the taxpayer (a debtor in this
available about the
situation) is subject to business rescue proceedings as per the
recoverability of the tax-
Companies Act. Section 195(1)(b) of the Tax Administration
debt
Act, stipulates that whilst SARS is a party to the business rescue
agreement, it cannot recover the tax outstanding from a taxpayer
In practice, it is noted that the cost to recover the tax-debt cannot
who is in business rescue since the payment of its debt is
be included in the outstanding tax-debt.
suspended by operation of law. SARS has agreed to suspend or
freeze the repayment of debt as per the agreement of creditors.
4
Section 99 of the Tax Administration Act 28 of 2011.
5
Section 145 (4) (b) of the Companies Act 71 of 2008 and tax case law SARS vs Beginsel NO (case number
SARS’ status as a creditor during an approved business rescue is 15080, 31 October 2012.
6
Section 99 of the Insolvency Act No 24 of 1936. Preference in regard to certain statutory obligations.
no different from any other concurrent creditor of the company5. 7
Section 196 of the Tax Administration Act 28 of 2011
16 TAX PROFESSIONALPermanent write-off of debt
A permanent write-off is made by a senior SARS official when
it is an integral part of a compromise or if the tax-debt is
irrecoverable by law. So, what is tax-debt irrecoverable at
law? This can best be explained by section 198 of the Tax
Administration Act. It reads as follows:
A tax-debt is irrecoverable at law if:
1. It cannot be recovered by action and judgment of a court,
or
2. It is owed by a taxpayer/debtor that is in liquidation or
sequestration and it represents the balance outstanding
after notice is given by the liquidator or trustee that no
further dividend is to be paid or a final dividend has been
paid to the creditors of the estate, or
3. It is owed by a taxpayer/debtor that is subject to a
business rescue plan referred to in Part D of Chapter
6 of the ‘Companies Act’8, to the extent that it is not
enforceable in terms of section 154 of that Act.
A tax-debt is not irrecoverable at law if SARS has not first
explored action against or recovery from the assets of the
persons who may be liable for the debt under Part D of
Chapter 11.
Part D of Chapter 11 of the Tax Administration Act refers the
collection of tax-debt from third parties. Thus, it is imperative that
SARS must investigate whether it can recover the tax-debt from
the taxpayer via the third parties associated with the defaulting
taxpayer. SARS would investigate (as per section 180 of the Tax
Administration Act) whether the person (or financial manager) CONCLUSION
liable for the payment of the outstanding tax-debt of the taxpayer
It is imperative for tax practitioners to note that although the
was negligent or was fraudulent, giving rise to the tax-debt.
discussion appears tedious and laborious, many taxpayers
SARS could also attempt to recover the tax from the person
have been successful in obtaining a permanent compromise
who consciously dissipated the taxpayer’s asset to obstruct the
or a permanent write-off of their tax-debts. The successful
collection of a tax-debt of the taxpayer (section 183 of the Tax
applicant is the one who discloses all material facts in relation
Administration Act.).
to the compromise of the debt and SARS is of the view that no
significant information is withheld by the taxpayer.
Procedure for writing-off the tax-debt
A SARS official9 must follow four steps before he/she can decide It is likely that a taxpayer may have tax-debts outstanding
to write-off a tax-debt. Before deciding to ‘write-off’ a tax-debt, a embracing a variety of taxes, such as, income tax, PAYE, VAT, SDL,
senior SARS official must: and UIF. SARS, however, may award compromises or write-offs
1. Determine whether there are any other tax-debts owing to on taxes such as PAYE, VAT, SDL and UIF outstanding, although
SARS by the taxpayer (debtor), the taxpayer seeking the compromise is an agent collecting these
2. Reconcile amounts owed by and to the taxpayer (debtor), taxes on behalf of SARS. However, interest and penalties, arising
including penalties, interest and costs, from these taxes may be waived by SARS as part of the write-off or
3. Obtain a breakdown of the tax-debt and the periods to which compromise by SARS. Finally, tax legislations do not specify which
the outstanding amounts relate, and taxes are a candidate for a write-off or compromise of a tax-debt. ■
4. Document the history of the recovery process and the reasons
for deciding to ‘write-off’ the tax-debt. 8
art D of the Companies Act 71 of 2008 refers to the development and approval of a business
P
rescue plan. Section 154 of the Companies Act provides that a creditor who has acceded to
the discharge of the whole or part of a debt owing to that creditor will lose the right to enforce
the relevant debt or part of it. Sub-section (2) stipulates that if a business rescue plan has been
A senior SARS official must decide whether to support a business approved, a creditor is not entitled to enforce any debt owned by the company immediately before
the beginning of the business rescue process, except to the extent provided for in the business
rescue plan dealt with in Part D of Chapter 6 of the Companies rescue plan.
9
Section 199 of the Tax Administration Act 28 of 2011.
Act or a compromise made to creditors under section 155 of the
References
Companies Act. This section of the Companies Act requires a Companies Act 71 of 2008 (updated May 201
Income Tax Act 58 of 1962, as amended
company that is being wounded to make a proposal of its financial Tax Administration Act 28 of 2011
Beric Croome & Lynette Olivier: Tax Administration. 2nd Edition. Juta. 2015.
obligations to all its creditors. SARS: Short guide to the Tax Administration Act No. 28 of 2011. June 2013 version 2
TAX PROFESSIONAL 17INCOME TAX
Retirement annuities:
the new trust
Remay de Kock (CFP) and Kezia Talbot, BDO
Considering the various legislative changes to Trusts over the past year, a lot of
speculation has emerged on the future of Trusts as an estate planning tool.
A
lthough Trusts have been placed under the spotlight, If a Trust, however, taking regard to recent changes in
the purpose of the Trust and the circumstances of terms of Section 7C of the Income Tax Act and the above
each client should be the determining factors in mentioned factors and costs, do not meet your expectations,
deciding to create a Trust. then consideration of the use of a retirement annuity might
just tick all your boxes. Retirement Annuities (RA) have
become a popular estate planning tool because of, not only,
When considering the appropriateness of a Trust, the following
the tax savings opportunities, but also the benefits of using
factors are considered to determine the suitability thereof:
an RA to achieve growth outside of your estate.
1
Albeit the fact that both a Trust and RA have a place,
considering the circumstances of each person, it is worthwhile
GROWTH
PEGGING to mention the benefits of a RA as an alternative to the use
OF ASSETS of a Trust. To further argue the popularity of the RA in recent
years, an increased tax deduction for retirement savings
from 15% to 27.5%, has only made this planning tool more
2
attractive as a substitute for trusts.
PROTECTION Take table 1 into account to compare the similarities between
OF ASSETS FROM the two vehicles. Except for the significant difference in
CREDITORS
structuring of payment, the similarities are uncanny.
If we take the table above into account, the advantages of an
3
RA when compared to that of the Trust confirm that should a
trust not be the best suited vehicle, an RA can be the second
best, if not, in certain circumstances, the best replacement for
TAX
IMPLICATIONS your specific purpose.
The Minister of Finance, in his 2018 Budget Speech,
announced a long-anticipated amendment to the rate of
estate duty. With effect from the 1 of March 2018, estates
4
with a net asset value of less than R30 000 000 will be subject
to estate duty at the rate of 20%, and for those estates with
CIRCUMSTANCES a value greater than R30 000 000, the rate increases to 25%.
OF EACH PERSON For those persons who fall into the latter category, it may
be prudent to take advantage of RAs to ensure that, as far
as possible and considering annual limits applicable to RAs,
your dutiable estate falls below the R30 000 000 bracket, so
as to reduce your estate duty liability while still ensuring that
your dependents are financially provided for.
There isn’t a one size fits all answer to the ongoing questions
around the future or suitability of trusts, but it might be
reassuring to know that there are other options available to
suit your specific circumstances. ■
18 TAX PROFESSIONALTable 1
Factors Trust Retirement Annuity
Growth pegging Growth takes place within the Trust. Growth of assets takes place within the RA.
Protection from creditors in terms of
Separate legal entity, thus protected from
Protection from creditors Section 37A and B of the Pension Funds
creditors.
Act.
1. Subject to Donations Tax at 20% for
donations less than R30m or 25% for
Contributions qualify for an income tax
donations greater than R30m in any tax
deduction:
Tax implications when assets are placed year, or
Limited to the higher of 27.5% of
in the vehicle 2. Capital gains Tax Implications when sold to
remuneration or taxable income, subject
the Trust, or
to an annual ceiling of R350 000.
3. Interest at the official rate on funds loaned
to the Trust.
1. Taxed according to the conduit principle at
Tax implications on income received Taxed within the Four Funds Approach
marginal rate of beneficiary;
within the vehicle at 0%.
2. Taxed within the Trust at 45%.
Separate legal entity – thus no estate duty Does not form part of your estate – thus
Estate Duty implications
implications. no estate duty implications.
1. Funds are only available at death,
retirement, retrenchment,
Discretion of Trustees in terms of the 2. At death, the Trustees of the Fund have
Liquidity Trust Deed to distribute income/capital to a discretion in terms of section 37C of
beneficiaries. the Pension Funds Act of distribution of
funds to dependents – thus beneficiary
nomination not binding.
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Are pension funds,
PBOs and universities
exempt from all taxes?
Magda Snyckers and Sarah Gama, ENS Africa
The South African Income Tax Act, 1962 (the “Income Tax Act”) contains
exemptions from income tax that apply to institutions such as pension
funds, certain universities and non-profit public benefit organisations,
with an altruistic or philanthropic intent.
M
ore specifically, a non-profit organisation may apply transferred to a PBO that is exempt from income tax in terms of
to the South African Revenue Service (SARS) to be section 10(1)(cN) of the Income Tax Act, if the tax thereon would
registered as a Public Benefit Organisation (PBO) in be legally payable and borne by that PBO. A similar exemption is
terms of section 30 of the Income Tax Act if it meets provided for in section 8(1)(e) of the STT Act for an institution that
certain specified requirements. If the requirements of section is exempt from tax in terms of section 10(1)(cA)(i) of the Income
10(1)(cN) of the Income Tax Act are met by the PBO then the Tax Act.
accruals and receipts of such PBO are exempt from income tax.
Therefore, registered PBOs and approved universities that are
Furthermore, the receipts and accruals of a university, of which the exempt from the payment of income tax in terms of sections 10(1)
principal object is the conducting of scientific, technical or industrial (cN) or 10(1)(cA)(i) of the Income Tax Act are also exempt from STT
research, which are approved by SARS and comply with the in terms of sections 8(1)(d) and (e) of the STT Act.
requirements of section 10(1)(cA), are exempt from income tax.
However, it is noted that a pension fund is not entitled to a similar
In addition, the receipts and accruals of a “pension fund” (as STT exemption and it is not clear on what basis a pension fund
defined in the Income Tax Act) are exempt in terms of section has not been afforded the same STT relief. ■
10(1)(d) of the Income Tax Act.
Tax exemptions are not limited to income tax – pension funds,
PBOs and universities may also qualify for an exemption from
donations tax, dividends tax and capital gains tax (all levied in
terms of the Income Tax Act).
However, to the extent that tax-exempt institutions acquire shares,
the tax position is slightly different. Securities transfer tax (STT) is
levied upon the transfer of shares that are issued by South African
incorporated companies or foreign companies that are listed on
a South African exchange. These provisions are set out in the
Securities Transfer Tax Act, 2007 (the STT Act). STT is currently
levied at a rate of 0.25% on the taxable amount of every transfer
of a security. In the context of the acquisition of listed shares,
the STT liability is that of the member (ie, stock broker) or central
securities depository participant from or through whom the shares
are acquired. However, the STT Act provides that the tax may be
recovered from the person to whom the shares are transferred.
A pension fund, PBO or university may, absent an applicable
exemption, effectively suffer STT upon the acquisition of shares.
Section 8 of the STT Act contains certain exemptions from STT.
In particular, section 8(1)(d) of the STT Act provides that STT is
not payable in respect of a transfer of a security if the security is
20 TAX PROFESSIONALYou can also read
